Discussion:Minister: Employee W-2 vs. 1099
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| Revision as of 04:14, 23 March 2009 AEM CPA (Talk | contribs) (He hasn't opted) ← Previous diff |
Revision as of 04:49, 23 March 2009 Jdugancpa (Talk | contribs) (Well, your first) Next diff → |
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| {{ForumReplyPost|UserID=AEM CPA|Date=23 March 2009|Text=He hasn't opted out, by the way.}} | {{ForumReplyPost|UserID=AEM CPA|Date=23 March 2009|Text=He hasn't opted out, by the way.}} | ||
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| + | {{ForumReplyPost|UserID=Jdugancpa|Date=23 March 2009|Text=Well, your first order of business is to provide sufficient information to the church person responsible for this that he is wrong and that the priest is not subject to FICA but is subject to SECA. IRS Pub 517 might help, It may be found here: http://www.irs.gov/pub/irs-pdf/p517.pdf | ||
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| + | Also, several good clergy tax guides are available through Amazon or other sources: | ||
| + | http://www.amazon.com/s/ref=nb_ss_gw_0_10?url=search-alias%3Daps&field-keywords=clergy+tax+guide+2009&sprefix=clergy+tax | ||
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| + | Once the church is convinced that you are correct, I would suggest amending the W-2 to gross up compensation to include the ERFICA paid erroneously on the priest behalf, then reclassify EE and ERFICA as FWT. Then, the W-2 will include Box 1 compensation, plus Box 2 withholding. Boxes 3, 4, 5 & 6 will all be zero. Amend the 941's to follow what you have done on the W-2. Since all taxes have been paid, and any taxes paid are being reclassified as FWT, no penalties will result and no refund of taxes will occur (in amending the 941, that is.) | ||
| + | }} | ||
Revision as of 04:49, 23 March 2009
Discussion Forum Index --> Advanced Tax Questions --> Minister: Employee W-2 vs. 1099
Discussion Forum Index --> Tax Questions --> Minister: Employee W-2 vs. 1099
| 15 November 2008 | |
| New client (small church) paid minister with W-2 for 4 months, then "accountant" had him switched over to 1099. Now main body of Church has sent memo telling everyone that the minister is supposed to be a W-2 employee.
Minister will receive both 1099 and W-2 for same tax year. Should I do anything to "convert all his earnings to wages? Should I switch him over to W-2 (which I assume is the correct treatment) and just move forward. I fail to see any economic advantage to either. | |
| 15 November 2008 | |
| Yes, he should be on a W-2 and yes, his business expenses are deductible on Sch A, subject to the 2% limit. | |
| 15 November 2008 | |
| Lots of confusion on this topic, be careful. See Discussion:Can_you_treat_a_minister_as_an_employee? and Minister_/_Clergy_Taxation for more info.
Also, I recommend Church and Clergy Tax Guide, available from [1]. You'll pay a few bucks, but it will save you many hours of time if you work in this area. | |
| November 15, 2008 | |
| He knows the right way to treat it, that's not the question. The question is whether it's ok to send both a W2 AND a 1099 for the same service in the same year. My answer is that since the W2 has no withholding or SS on it, usually, then, sure, why not just convert the 1099 services to W2 now, report in the 4th Qtr...and be on to the next problem. | |
ReadMyLips (talk|edits) said: | 15 November 2008 |
| Are there parsonage expenses excluded from income tax (other than SS) that would be impacted by 1099 treatment rather than W2? | |
| 15 November 2008 | |
| As I recall, if a portion of his wages have been designated as housing allowance, any deductible expenses must be reduced by the exempt portion of his wages. | |
| 15 November 2008 | |
| Jdugan, yes, the IRS does take the position that 265 applies to the parsonage allowance. Not sure that this is correct since 265 says the disallowance applies to income that is totally exempt from subtitle A taxes. Parsonage allowances are subject to Subtitle A taxes under 1402. | |
CarlLaFong (talk|edits) said: | 17 November 2008 |
| A minister employed by a church and receiving a parsonage allowance cannot possibly be an independent contractor. | |
| November 17, 2008 | |
| Treatment's the same either way since W2 is dual status for his tax filing. Since it's the correct treatment and no withholding, no need to have a 1099 issue. | |
CarlLaFong (talk|edits) said: | 18 November 2008 |
| If he goes on a W-2, then he is subject to income tax withholding - which of course would be proper. | |
| 18 November 2008 | |
| Withholding from wages paid to clergy is voluntary, not mandatory, even if the minister is considered a W-2 employee. From IRS Pub 517, page 10:
Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her wages or salary. However, your salary generally is not subject to federal income tax withholding if both of the following conditions apply. You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner. Your salary is for qualified services (see Qualified Services, earlier). | |
| 26 December 2008 | |
| New facts to add (after asking many questions):
Minister was paid improperly as W-2 with taxes and FICA withheld during the first 4 months of year. Any suggestions on how to treat these withholdings on the 1040? Treat as estimated payments? I am converting his 1099 earnings to W-2 wages in 4th Qtr. as JR1 suggests. | |
| 27 December 2008 | |
| Refund the FICA. The FWT should be treated as voluntary withholding. | |
| 28 December 2008 | |
| Or, rather than refunding the FICA, reclassify it as FWT. | |
| 28 December 2008 | |
| Jim,
Is this something I would handle by amending the relevant 941s? | |
| 9 February 2009 | |
| I can think of a situation where a minister/priest would file a schedule C as well as receiving a W-2 from the church. There are occasions where the minister/priest will receive money directly from parishioners for blessing houses, baptisms, etc. In that case, that income(which the church would not be aware of) would be reported on a Schedule C, along with any expenses associated with earning that particular income. | |
| 22 March 2009 | |
| Regarding refunding and/or reclassifying the FICA withholdings, what is the mechanism for this? What if the church refuses to cooperate? | |
| 22 March 2009 | |
| Churches and ministers can opt out of paying Fica/ medicare tax. The minister is still responsible for income taxes. | |
| 23 March 2009 | |
| I'm aware of that. The problem I have is that I have a priest who received three W-2s this year, two of which treated him as an employee even for FICA and Medicare. They withheld his half of the taxes and paid the other half. The church insists that they've handled it right, but they obviously haven't. How can I rectify the situation? Do I just force it to come out in the wash on the 1040, is there a separate form I need to file, do I have to get the W-2 amended? I'm not the accountant for the parish or the school, just the priest. | |
| 23 March 2009 | |
| Well, your first order of business is to provide sufficient information to the church person responsible for this that he is wrong and that the priest is not subject to FICA but is subject to SECA. IRS Pub 517 might help, It may be found here: http://www.irs.gov/pub/irs-pdf/p517.pdf
Also, several good clergy tax guides are available through Amazon or other sources: http://www.amazon.com/s/ref=nb_ss_gw_0_10?url=search-alias%3Daps&field-keywords=clergy+tax+guide+2009&sprefix=clergy+tax Once the church is convinced that you are correct, I would suggest amending the W-2 to gross up compensation to include the ERFICA paid erroneously on the priest behalf, then reclassify EE and ERFICA as FWT. Then, the W-2 will include Box 1 compensation, plus Box 2 withholding. Boxes 3, 4, 5 & 6 will all be zero. Amend the 941's to follow what you have done on the W-2. Since all taxes have been paid, and any taxes paid are being reclassified as FWT, no penalties will result and no refund of taxes will occur (in amending the 941, that is.) | |
